The two draught horses pulling fertilizer demand are growing populations and an increase in demand for meat. The latter has an exponential effect on the grain markets. For example, it takes about seven pounds of grain to produce one pound of beef. The ratios are 4:1 for pork and 2:1 for poultry.

The credit crisis makes it more difficult for farmers to get credit to buy equipment, seed and fertilizers. The market, in response, killed the stock prices of the fertilizer producers – more than discounting a potential soft spring season in 2009. But what it sets up is a real boom in fertilizer pricing on the back half of 2009 as grain prices recover, the debt markets ease and the unfolding food crisis takes hold once again. All the while, global inventories of grain still dwell near record lows.

That’s the lay of the land in a big-picture sense. I recently took a look at a fertilizer company that produces all three of main nutrients in the fertilizer world – nitrogen, phosphate and potash. This company has a particular abundance of potash, of which it is one of the largest producer in the world.

Of all the nutrients, potash is the most attractive from an investment point of view. It is the most supply constrained and it yields the richest profit margins. Good deposits of potash are rare. Only 12 countries produce it, but farmers the world over use potash to produce nearly everything. U.S. corn ethanol is less than 2% of overall use – an important consideration, since the ethanol business is struggling now.

There are no big new sources of supply coming online anytime soon. Potash also has the least amount of government involvement, thereby lowering political risk.

The crash of 2008 has given us a gift. For a short time, we can buy the biggest and best house on the block for almost half its net asset value.  It’s good for these times, too, because it’s a fortress as far as financial strength goes. To learn more about this potash powerhouse, you can join my readers at Capital & Crisis by clicking on the link below.

Until next time,
Chris Mayer

December 29, 2008

Potash Profits Amidst the Growing Demand for Fertilizer was originally featured in the Penny Sleuth.